The Backstory
Having arrived at a solution that both the Democrat-led Senate and Republican-dominated House can support, the student loan crisis appears to be on the way to a successful resolution. In fact, the compromise, which ties the interest rate on subsidized student loans to the market rate of 10-year Treasury notes but also puts finite limits on the maximum allowable rate, could arrive on President Obama’s desk as early as this week. This is welcome news not only for undergraduate students – whose subsidized Stafford loans dominated the headlines throughout the debate – but also for graduate students. In fact, while the undergraduate interest rate is still expected to rise from 3.4% this year (not to the much-feared 6.8% but to the more modest 3.9%), many graduate students will actually see the interest rate they pay on new loans fall under the deal.
This Year
That is because the interest rate charged on the kind of unsubsidized Stafford loans used by many graduate students – which has been 6.8% since 2006 – will fall to 5.41% for the upcoming academic year. Likewise, the interest rate on PLUS loans – which many graduate students use to bridge the gap between the $20,500 they are allowed, at most, to borrow through unsubsidized loans and their true financial need, is also expected to fall from 7.9% to 6.41%.
Moving Forward
Students should be careful moving forward, however – because all student loan interest rates are now tied to the market, some analysts believe that the rate could again exceed their previous limits as early as 2015. Moreover, because these rates will differ from year to year, graduate students could quite easily be forced to manage multiple loans at varying rates at the same time. As a result, though the new legislation means that current students will be able to take advantage of lower rates in the short term, future increases and variable rates make it a mixed blessing for graduate student in the long term.
